Debt advice & tracker mortgages

25 February 2009

For anyone with a tracker mortgage, the last three months have been an exciting time. Whatever else is happening to their finances, at least they’ve been able to watch their mortgage payments go down, as the Bank of England’s base rate dropped from 4.5% at the start of October 2008 to 1.5% in January 2009.

They might still need debt advice to help them stay on top of their other debts, but in many cases that debt advice is quite straightforward: make the most of that ‘spare’ money. After all, these aren’t small amounts they’re saving. Someone with a £150,000 mortgage could easily have seen their monthly mortgage payments drop by £200 or more.

Debt advice & spare money
So what is the best way of using that money? As always, it depends on your financial situation – but the right debt advice could point you in the right direction. A few ideas:

1) If you have unsecured debts (particularly if they’re high-interest debts such as credit card / store card debts), this could be an excellent opportunity to work on clearing them. How? The ‘standard’ debt advice would be ‘Put as much as possible towards the debt that charges the most interest – and once you’ve cleared this one, move on to the debt with the next-highest rate’.

2) Alternatively, overpaying your mortgage is always a good idea (if the terms allow). Mortgages normally charge much lower interest rates than other forms of debt, but they also last much longer, which means that interest can really build up. Overpaying your mortgage means you’ll owe your lender less capital, which means you’ll be paying less interest.

3) Or you could save that money. Put £200 aside for six months and you’ll have £1,200 for a rainy day. Never forget that the cost of your tracker mortgage will go up as soon as the base rate does. Depending on what happens to the bank rate, it could end up costing you a lot more than you expect.

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These are just three ideas. There may be other, better, ways you could spend your ‘spare’ money – and it’s always a good idea to get some professional debt advice before you make your mind up.

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Gregory Pennington is a member of DEMSA whose code of conduct is approved by the Office of Fair Trading.